### Chapter 5 Review Exercises

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• 23. Finding Social Security Tax

Joe and Carolyn have been married for 45 years. In 2010, Joe retired at his full retirement age, 66. During his last year of employment, Joe had an income of \$58,000. The Social Security Administration calculates that Joe's average indexed monthly earnings (AIME) is \$3226.

During his last year of employment, how much should Joe have paid in Social Security tax?

• Worked-Out Solution

In 2010, the rate for Social Security contribuiton was 6.2% for employees and 6.2% for employers. If Joe was employed, he would have paid

in Social Security taxes. His employer would have paid the same amount towards Joe's Social Security taxes.

If Joe had been self-employed, then he would have paid the full amount by himself.

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```   _____     ___     _____      _____    _    _
/ ___//   / _ \\  |  __ \\   |  ___|| | \  / ||
\___ \\  / //\ \\ | |  \ ||  | ||__   |  \/  ||
/    // |  ___  ||| |__/ ||  | ||__   | .  . ||
/____//  |_||  |_|||_____//   |_____|| |_|\/|_||
`-----`   `-`   `-`  -----`    `-----`  `-`  `-`

```
• 24. Finding Medicare Tax

Joe and Carolyn have been married for 45 years. In 2010, Joe retired at his full retirement age, 66. During his last year of employment, Joe had an income of \$58,000. The Social Security Administration calculates that Joe's average indexed monthly earnings (AIME) is \$3226.

During his last year of employment, how much should Joe have paid in Medicare tax?

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```  _____      ___      _  __    ______   __   _
|__  //    / _ \\   | |/ //  /_   _// | || | ||
/ //    / //\ \\  | ' //    -| ||-  | '--' ||
/ //__  |  ___  || | . \\    _| ||_  | .--. ||
/_____|| |_||  |_|| |_|\_\\  /_____// |_|| |_||
`-----`  `-`   `-`  `-` --`  `-----`  `-`  `-`

```
• 25. Social Security Benefit Formula

Joe and Carolyn have been married for 45 years. In 2010, Joe retired at his full retirement age, 66. During his last year of employment, Joe had an income of \$58,000. The Social Security Administration calculates that Joe's average indexed monthly earnings (AIME) is \$3226.

Use the Social Security benefit formula on page 241 to estimate Joe's primary insurance amount (PIA).

• Worked-Out Solution

The completed formula is shown below.

So, Joe will receive \$1473 in Social Security benefits each month.

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``` _____       ___      ______     ___
|  __ \\    / _ \\   /_   _//   / _ \\      ___
| |  \ ||  | / \ ||  `-| |,-   | / \ ||    /   ||
| |__/ ||  | \_/ ||    | ||    | \_/ ||   | [] ||
|_____//    \___//     |_||     \___//     \__ ||
-----`     `---`      `-`'     `---`       -|_||
`-`
```
• 26. Social Security Benefits

Joe and Carolyn have been married for 45 years. In 2010, Joe retired at his full retirement age, 66. During his last year of employment, Joe had an income of \$58,000. The Social Security Administration calculates that Joe's average indexed monthly earnings (AIME) is \$3226.

Suppose Joe retired at age 62. How long would Joe have to live to make waiting for full benefits more economical? Assume a 3% cost-of-living increase each year.

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```  _  __     ___                 ___     _____
| |/ //   / _ \\      ___     / _ \\  |  __ \\
| ' //   | / \ ||    /   ||  / //\ \\ | |  \ ||
| . \\   | \_/ ||   | [] || |  ___  ||| |__/ ||
|_|\_\\   \___//     \__ || |_||  |_|||_____//
`-` --`   `---`       -|_|| `-`   `-`  -----`
`-`
```
• 27. Qualifying for Social Security Benefits

Joe and Carolyn have been married for 45 years. In 2010, Joe retired at his full retirement age, 66. During his last year of employment, Joe had an income of \$58,000. The Social Security Administration calculates that Joe's average indexed monthly earnings (AIME) is \$3226.

Carolyn has always been a homemaker and has never paid Social Security tax. Will she qualify for Social Security retirement benefits? Explain.

• Worked-Out Solution

No, Carolyn does not qualify to receive Social Security benefits.

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``` _____       ___                ______    _  _
|  __ \\    / _ \\    ____     /_   _//  | \| ||
| |  \ ||  | / \ ||  |    \\    -| ||-   |  ' ||
| |__/ ||  | \_/ ||  | [] ||    _| ||_   | .  ||
|_____//    \___//   |  __//   /_____//  |_|\_||
-----`     `---`    |_|`-`    `-----`   `-` -`
`-`
```
• 28. Survivors Benefits

Joe and Carolyn have been married for 45 years. In 2010, Joe retired at his full retirement age, 66. During his last year of employment, Joe had an income of \$58,000. The Social Security Administration calculates that Joe's average indexed monthly earnings (AIME) is \$3226.

Use the Internet to research qualifications for survivors benefits through Social Security. Suppose Joe dies before Carolyn. Will Carolyn qualify for survivors benefits? Explain.

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```  _  _    __   __  __    __   _    _    _    _
| \| ||  \ \\/ // \ \\ / // | || | || | |  | ||
|  ' ||   \ ` //   \ \/ //  | || | || | |/\| ||
| .  ||    | ||     \  //   | \\_/ || |  /\  ||
|_|\_||    |_||      \//     \____//  |_// \_||
`-` -`     `-`'       `       `---`   `-`   `-`

```
• 29. Economic Dependency Ratio

Joe and Carolyn have been married for 45 years. In 2010, Joe retired at his full retirement age, 66. During his last year of employment, Joe had an income of \$58,000. The Social Security Administration calculates that Joe's average indexed monthly earnings (AIME) is \$3226.

How might the economic dependency ratio affect Joe's retirement benefits in the future?

• Worked-Out Solution

No one knows the answer to this question. If the economic dependency ratio continues to drop, then it is possible that the tax burden on working people will be great enough that Social Security benefits might be lower. Because of the voting power of retired people, most people see this as unlikely. It seems more likely that the retirement age will be raised or that non-retirement benefits will be cut.

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```   _____    _____     _____      ___      _____
/ ___//  |  ___||  /  ___||   / _ \\   / ____||
\___ \\  | ||__   | // __    | / \ || / //---`'
/    //  | ||__   | \\_\ ||  | \_/ || \ \\___
/____//   |_____||  \____//    \___//   \_____||
`-----`    `-----`    `---`     `---`     `----`

```
• 30. Economic Dependency Ratio

How might the economic dependency ratio affect the qualifications for Social Security retirement benefits in the future?

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```  ______     ___     ______      ___     __   _